Transcript New Haven Needle Exchange Program

Agenda
• Medicare
• Dialysis
• Model
Medicare
• Established 1965
– President Johnson
• Who’s covered?
– 65+ and legal and paid
Medicare taxes for +10
years
– Social Security disability
for +2 years
– Social Security disability
and ALS
– On dialysis or need kidney
transplant
• Part A
– Hospital stays +1 night
– Skilled nursing facilities (short
term)
• Part B:
– Most medical care
• Part C: Medicare Advantage
– Established 1997. Complicated
– 22% of Medicare population
– A+B through private providers
• Part D:
– Established 2003. Complicated
– Private plans that cover drugs
Medicare Insurance
• Premium: $96.40/mo. for Part B
– Higher for higher incomes
• Deductibles
– $1069 for hospital stays (Part A)
– $135 for Part B
• Co-Pays for Part B
– 20% for most
– 0% for lab work
• Out of pocket expenses can be covered by
– Medicaid for poor
– Private insurance (Medigap)
– Except “donut hole” for drug coverage
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for Part A
for Parts B & D
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Medicare Reimbursement
• Fee for service
• Sets rates
– Lower than private health insurance
– Sometimes using Average Sales Price (ASP)
– Does not negotiate drug prices for Part D
• Moving towards “pay for performance”
– Paper looks at optimal contract for dialysis
Agenda
• Medicare
• Dialysis
• Model
Kidneys
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Renal = kidney related
Produce urine
Remove toxins from blood
Homeostasis = regulate
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Electrolytes (salts)
pH
Produces renin regulating blood pressure
Absorbs glucose and amio acids
Metabolizes vitamin D into calcitrol (calcium balance)
Erythropoietin (EPO) production
(hormone for red blood cell production)
Kidney Function
• estimated glomerular filtration rate (eGFR)
+90% normal
+60% hardly noticeable
< 60% Chronic kidney disease (CKD)
30-59% anemia + weak bones
≤ 20% causes serious health problems
≤ 10%, 15% End Stage Renal Disease (ESRD)
– Need dialysis or transplant (long waitlist)
Chronic Kidney Disease (CKD)
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Chronic = deterioration over time ≠ acute
Most diseases attack both kidneys
0.2% prevalence
Common causes
– Diabetes
– High blood pressure
• Treatment can slow progression
• 10-20 years until ESRD
Dialysis
• Hemodialysis (hemo = blood)
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3x week, 3-4 hr sessions in clinic
Alternatively at home more frequently
Vein in hand/arm
Most common (focus of paper)
• Peritoneal dialysis
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Pump fluid into peritoneal cavity
Exchange through peritoneal membrane
Permanent tube in abdomen
4-5x day, less equipment
• Also inject drugs
What can go wrong?
• Hospitalized ~ 30% of the year
• Causes
– Heart problems
– Fluid build-up
– Infection
• Dosage = Urea Reduction Ratio (URR)
– Adequate = +65%
• Anemia = Hematocrit level (red blood count)
– Optimal = 33-36%
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• Drugs billed separately (40% of revenue)
• Lab work billed separately
• New rule would bundle them (9/15/2009)
Stylized Medicare Payments
• $130/session
• When hospitalized
– No payment to provider
– Costs Medicare $30,600 / year
Evidence-Based Incentive Systems
for Medicare Dialysis Payments
• Incentives matter
• Optimal contract design
• With data!
• Dialysis is a good example.
Agenda
• Medicare
• Dialysis
• Model
Principal Agent Model
• 2 player game
– Principal = Medicare
– Agent = Dialysis provider
• Sequential game
2. Agent takes hidden
action e
1. Principal
announces contract 
3. Outcome o(e) observed
Principal receives E[U(o,-(o))]
Agent receives E[u(e,(o))]
Principal Agent Model
• Agent optimality: e*() in arg maxe E[u(e,(o(e)))]
• Principal optimality:
* in arg max E[U(o(e*),-(o(e*)))]
s.t. Agent participation constraint holds
U0 ≤ E[u(e*,(o(e*)))]
2. Agent takes hidden
action e
1. Principal
announces contract 
3. Outcome o(e) observed
Principal receives E[U(o,-(o))]
Agent receives E[u(e,(o))]
Intermediate and Downstream
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int = Intermediate, ds = downstream (final)
Outcome a vector: o = (oint,ods)
Action a vector: e = (eint,eds)
o(e) = simple function + correlated noise
– oint = eint + int
– ods = oint + ´ds = eint + eds + ds
– noise mean 0 and  = Cov (int, ds)
• E[oint] = eint, E[ods] = eint + eds
Simplifications
• Affine contract: (o) = 0+intoint+dsods
• Aligning incentives: oint = E[ods | oint ]
• Action/effort has cost g(e) = cTe+0.5 eTQ e
– Increasing costs to effort
• Agent has exponential utility
– u(x) = -exp (-r x)
– Constant absolute risk aversion
– u(e,(o)) = - exp (-r [(o) - g(e)])
• Principal risk neutral
– E[U(o,-(o))]= v ods - (o)
Dialysis Application
• Outcomes o = (oint,ods)
– ods = fraction of hospital free days in year
– oint = f(DOSAGE,ANEMIA)
DOSAGE = % of treatments URR ≥ 65%
ANEMIA = % of treatments hematocrit in [33%,36%]
• Current payment scheme: (o) = current ods
• Reservation utility U0 set by current payment
scheme
Risk Adjustment
• Principal able to observe patient characteristics
(part of the noise)
 int  int,i + hint(PATi)
 ds  ds,i + hds(PATi)
• Payment scheme is risk adjusted
 (o) = 0+int (oint-hint(PATi)) +ds (ods- hds(PATi))
– Similar to adjustment for case-mix in current
scheme
Parameters
• r unknown, baseline 2·10-5
– paying $10 ~ 50-50 chance of winning/losing $1k
• v = $30,600 / year hospital free
• g(e), , f(DOSAGE,ANEMIA) fit from data
– g(e) adjusted R2 = 0.034
Results
• Current payment scheme ds = $27,900/year close
to optimal for int = 0
• Optimal scheme: (o) = $27,700oint+ $400 ods
$2,140 increase in Medicare payments to provider
+27 hospital free days
$123 savings for Medicare
Reward (and risk) increased for provider
• 266k Medicare patients on dialysis
+20k hospital-free life years, $32M savings
Sensitivity
• Higher risk aversion leads to small 0
• Diminishing returns for increasing v